Goldman cuts China GDP for 2022 amid lockdowns, omicron

Traffic police and epidemic prevention personnel work together to check vehicles at a freeway entrance in Zhengzhou, capital of Henan Province, China, on the afternoon of January 8, 2022.

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BEIJING – Goldman Sachs lowered its forecast for economic growth in China for 2022 on Tuesday pending increased restrictions on business activities aimed at containing the omicron Covid variant.

In recent days, China has reported pockets of omicron cases in Tianjin City and Anyang, Henan Province, which have resulted in at least partial closures. Xi’an, a large city in central China, has been closed since late December to control a Covid outbreak which authorities say is unrelated to omicron.

“In light of the latest developments in Covid – in particular, the likely higher average level of restriction (and therefore the economic cost) to contain the more infectious Omicron variant – we are revising our growth forecast for 2022 downwards to 4, 3%, down from 4.8% previously, “Goldman Sachs analysts Hui Shan and a team wrote in a report Tuesday night.

Consumption will likely be the most affected, while exports will be less, analysts said, as they assume limited disruption to supply chains. They expect the easing of government policy to offset half of the drag of Covid restrictions, and assume the negative impact will be concentrated in the first quarter.

The Chinese economy contracted in the first quarter of 2020 as more than half of the country closed its doors during the country’s first coronavirus outbreak. But the temporary closures have straddled the Lunar New Year holiday, when businesses can be closed for a month.

In the second quarter of 2020, the virus was under control nationally and the economy returned to growth.

Nearly two years later, local authorities are increasing travel restrictions and other measures despite a low number of cases – compared to the initial outbreak and a smaller one in the summer of 2021, Goldman analysts said. .

“Containing the national Covid situation remains the top priority for local authorities,” the report said.

Maintaining stability is essential, China’s top leaders stressed at an annual economic planning meeting in December.

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Many analysts expect China to maintain its zero tolerance policy to control the pandemic at least until the fall. That’s when the ruling Chinese Communist Party is due to hold a meeting that should give President Xi Jinping an unprecedented third term.

More immediately, just before the Beijing Winter Olympics kick off on February 4, authorities are working to ensure that the Lunar New Year does not contribute to new epidemics. The vacation travel season is expected to run from Jan. 17 to Feb. 25, Goldman analysts said.

Below Beijing’s GDP target?

Chinese officials are widely expected to announce a growth forecast of at least 5% for 2022 at an annual meeting in March.

That’s above Goldman’s revised GDP forecast of 4.3%, analysts said.

The streets of Tianjin, China, empty on January 10, 2022, as the city enters partial containment following a spike in omicron cases.

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To reconcile this potential gap between real growth and the GDP target, analysts at the bank said Beijing may roll out more stimulus or abandon the growth target – as it did in 2020.

They also noted previous cases in which the weakness of some growth measures did not prevent the official GDP figure from reaching the government’s target.

The accuracy of official China’s economic data is frequently questioned.

“Finally, of course, it could turn out that we are overestimating the impact on the growth of Omicron and Covid more generally, given the accumulated experience of the public health system with the virus and the continuous improvements of the systems. national border quarantine and virus control regimes, ”Goldman analysts said. .

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